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Notes -
Looking for some General Advice for
RetardsDummies on going from renting to owning…I live with my fairly-recently-married wife, renting a condo in a major city, and we’ve been looking at options to buy property instead. Well, as luck would have it, our landlord just recently reached out offering to sell us this very condo. His asking price isn’t a great deal, but it’s a fair one and I’m confident the unit will appreciate over time, probably significantly (aside from the general housing trend, it’s in a convenient and fast-gentrifying location). Based on what I’ve seen so far, we wouldn’t get this good of a place and this good of a location any other way.
So, I’m thinking we’re going to go through with it. My father in law has offered to gift us a frankly ridiculous-to-me sum to use as a down payment (in his half-joking words, “think of it as coming from your inheritance”) because he’s very eager for us to have a real asset on the books, so I’m not too worried about balancing monthly payments against the length of the mortgage, although I would love to hear what people think about that. One concern on my mind is that we will eventually need to sell and move to a proper house further out of the city, I assume before the mortgage is paid off. We’re in our late 20s and intending to have our first kid within the next couple of years. This place is big enough and located well enough to be suitable for at least one kid up through toddler-age (and in fact there are a number of families with young kids in the building) but for a 2nd or 3rd (or just an older kid) we will certainly want an upgrade. If anyone has gone through that process I’d be curious to hear as well.
Basically I’m just looking to hear the general thoughts of motteposters who have gone through this already. Also curious about the expected etiquette for negotiation.
What is the condo square footage and total bedrooms? Do either of you work from home and need a bedroom office? Do you plan for kids, and how many? If you buy a condo with only 2 bedrooms and need a dedicated office space bedroom, then there's no bedroom for a baby to sleep separately. Or do you plan to cosleep your baby, negating space needs for some time?
Fixed 30yr mortgage rates have been going up sharply and fast since March. I've noticed some 7/1 ARM mortgages which have a typically lower rate for 7 years then reset to a market rate in year 8. If you plan to buy and have a mortgage, but are sure you will leave in less than 7 years, then the ARM mortgages with temporary fixed rates can be a useful tool to save money.
Also umm, there's also the "take the big gift downpayment from your FIL while he is able and willing to offer it". Surely it covers the real estate broker and transaction fees with some left to spare. But you can also look at SFH or other condos if the gift is big enough.
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Is the sped-up inheritance enough to get or substantially pay for a single family home? At least in my city, they outperform condos substantially. And as someone who has done both urban SFHs and condos, I simply cannot imagine raising a child in the condo. I know people manage it, but it seems miserable.
I would only go with the condo if it were a genuine good deal (say, looking at comparables 10% off the market rate).
I would also do a lot of research into the HOA. Condo HOAs can have a lot of landmines, and you've probably been fairly insulated from it as a renter.
Be polite, of course, but you must negotiate for your and your future family's wellbeing. If your preexisting relationship with the landlord means you're uncomfortable playing hardball, that's another reason to avoid the condo. What price you settle on is very likely the difference between a good and a bad investment.
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Based on what you are saying I would run from the trade. I may change my mind if you are in an okay second or third tier city.
I hate the pricing in all the tier 1 cities right now. The city I am in the most in the States for the type of condo I am assuming you are describing the rent price would be about 3500-4k a month and the costs to own after 20% down would be 7-8k a month. Those numbers do not work to expect appreciation.
You just laid out a plan to move within 5-7 years. To sell the place you are buying you will pay 5% broker commission (most likely still), transfer taxes, appraisal, etc. It runs about 7% all-in for a lot of cities to sell a property. The first 7 years of a mortgage payment the principle pay down is basically 7%. So all the equity you paid in will disappear to selling costs.
All the real estate association publications on appreciation are basically bullshit and dominated by a few geographically and regulatory restricted places. I could do a long post picking apart issues with every real estate index but the short part is they all ignore key factors even the ones that only do repeated sales.
At your age you want to buy property. It feels like the “adult” thing to do and the next stage of life. Condos also are a very hard area to actually make money on. Current pricing is awful to buy in most markets unless you assume 30 year rates drop 300 bps.
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With condos specifically, look at HOA dues, reserves, info about special assessments (last time one was done, any plans to have one in the near future), and if HOA outsources management. I cannot stress this enough - HOA makes or breaks value of any condo. There's so many ways HOA could be mismanaged, from a few motivated boomers on the board strongarming to suppress monthly dues, which causes reserves to be insufficient a decade later, to hiring a 3rd party management company that charges you $80/hr any time you email HOA with a question or hires the most expensive person (because they get kickback) every time ANYTHING needs to be done. Once I've seen an owner have a huge legal battle with HOA - guess where the money comes from to pay those legal fees? Also look at renting rules, a lot of HOAs, especially the ones with a lot of boomers on the board, have rental caps (certain % of all units can be rented out at any time) - that affects the value significantly since a lot of people buy condos as an investment and it's a trash investment when you're beholden to HOA on whether you can rent out your own property.
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For condos specifically, find out how much they have in the reserve fund and if they've been skimping on any maintenance. I have a friend whose condo fees have been rising quite a lot the last few years because they don't have enough reserves to replace the building's old roof and it's getting harder and harder to get insurance to still cover the building because of it.
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Me and my wife were in a similar situation, with a flat in the city and planning to have our first child. The financially responsible thing would have been to have baby #1 in the city, and then moved out to the suburbs when #2 came along.
In the end, we moved out to the suburbs first. It wasn't the most economical decision, but I'm glad we made it. It's very comforting to be able to say 'this is our house, we own it, and we're probably going to live here forever'. Moving was stressful enough with my wife being pregnant at the time, it would have been harder if we'd had a baby or toddler I think.
But it really depends on how much you like the condo. If you weren't living there and were just viewing it as a potential buyer, is it the one you would go for?
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Owning a home is great. I am glad I do, most days. It is not a good financial choice.
For example: since I bought my house 4 years ago, it has gone down ~10% in real dollars. Then, leverage by a factor of 5+. The market has gone up 80%. The lost market growth on my down payment alone works out to about the same amount as I've paid in mortgage etc.
Even if the math did work in favor of owning in my specific case, this is like being the smug friend who held NVDA or BTC. Not a genius, just a lucky gambler. Actually, worse: a REIT would be a better analogy for that. Owning a specific house and being happy it worked out well is way higher variance. Foundation cracks? Meth lab next door? Have fun.
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